Amid a backdrop of faltering economic growth, U.K. Chancellor George Osborne was always going to face an uphill task providing answers to an increasing list of questions on how to stimulate growth. Has he gone far enough?

Mark Boleat, policy chairman at the City of London Corporation, the local authority for London’s Square Mile, said:“Budgets are often best remembered – fairly or not – for the proverbial rabbits pulled out of the chancellor’s hat. In reality, however, the most effective policy approach is to provide a sense of stability and continuity. One rabbit pulled from the chancellor’s hat today that the City [of London] welcomes his pledge to increase infrastructure spending by £3 billion from 2015/16. We cannot afford to stand still while our rivals build for the future.”

U.K. Treasury chief George Osborne said economic growth would be much slower than expected and his government would have to borrow almost $90.6 billion more than planned, which is likely to fuel criticism of his austerity drive.

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David Cottle

Welcome!

It won’t be the first time that a U.K. finance minister has found himself at odds with his euro zone peers, but George Osborne is probably quite content with the timing of Cyprus’s bailout imbroglio. He can’t expect much political cover for what is sure to be a tough Budget speech, but at least Cyprus might offer him some market cover, as investors choose to fret about the euro instead.

So far, indeed, the budget seems not to have figured much in sterling money-market trade this morning. The pound rose from a one week low against the dollar as the minutes of the Bank of England’s last monetary conclave showed more opposition to further stimulus than markets expected, and more explicit concern about a weak pound. Gilts are off, but that, too, seems to be down to the BoE as well.

Markets well know the U.K. is in a tight spot. Mr. Osborne isn’t going to change that view.

The British budget has become a semi-annual process. The official one comes in the spring. But there’s also a not so mini version around now.

And this year’s, due Wednesday, may be less mini than most. Chancellor of the Exchequer George Osborne has to deal with below-target growth and above-target deficits and no sign that either will return to stable trend anytime soon.

Keynesians tell him not to worry about the deficit and to use official borrowing to get growth going. Austerians tell him that’s the road to disaster.

He’s likely to listen to both.

Half way through a five-year parliamentary term, the economy hasn’t been going Mr. Osborne’s way. His initial promises of austerity were built on the premise that without a convincing program of fiscal probity, bond investors would abandon the U.K. market, leaving the country in much the same position as Greece.

Actual austerity was for the future, once the economy started to recover.

But any concerted recovery failed to come and instead the U.K. has struggled to post any meaningful growth, in spite of government deficits that have averaged around 7.5% of GDP since 2008, some of the biggest in the developed world. Fiscal tightening has largely been an illusion. Insofar as taxes have gone up, so too has spending.

Keynesians argue that talk of austerity has had a chilling effect on growth, as have increases in consumption taxes. The U.K. has underperformed the U.S. because it has not expanded fiscal spending by as much…

Several measures in Chancellor of the Exchequer George Osborne’s annual budget plan announced Wednesday have angered sections of the population, notably his plan to change pensioners’ fiscal allowances–dubbed the granny tax– while at the same time cutting income tax for those earning above £150,000 a year.

But the government’s announcement of its alcohol strategy, which was given under embargo to media outlets on Thursday night, helped in part to shift the spotlight from the budget ire.

A little perspective can be a good thing. But when it comes to Brits, houses, and money, it often goes out the window. So allow us a moment of tongue-in-cheek ribbing as we launch a charity appeal on behalf of rich people and the shiny-suited high-end estate agents who strive daily (for a fee) to help them buy and sell overpriced properties in London. For this, ladies and gentlemen, has been a galling week for this community, as U.K. Chancellor George Osborne announced an immediate rise in stamp duty on homes worth more than £2 million, taking the duty to 7% from 5%. Fair’s fair: this slaps tens of thousands of pounds on to the cost of buying a pricey property. Not to be sniffed at. Yet, from the tone of some analysis in the U.K. press this week, anyone would think they had been left destitute. As a reminder, the average price of a home in London is £350,000, according to the Land Registry. So we’re talking about posh pads for wealthy people. Still, London’s Evening Standard newspaper took up the harrowing story of the more well-heeled house buyers in the capital Thursday. “Agents across central London reported angry buyers pulling out of deals in what was described as “complete chaos”,” the paper reported. Some individual cases are particularly shocking… [Read on over the jump]

In the end this was a budget largely of interest to students of British politics rather than those of global markets, although the credit rating agencies’ view of it will probably even the balance.

The income-tax headlines were the farewell Chancellor Osborne bid to the unloved top, 50% tax rate, and, at the other end of the earnings scale, the raising of the personal-tax exemption to within a whisker of the £10,000 this government has said it wants to see.

There was some bad news for the U.K.’s main developed competitors too. These days the search for a tax efficient business domicile is on with a vengeance so the fall of U.K. corporation tax below that of the U.S., France, Germany and Japan should be seen as business friendly.

Mr. Osborne developed what seems like considerable resolve to tax high-end property, but this may not be enough to offset criticism from the left for cutting the top rate of tax.

However, looming over all of this is the weak outlook for U.K. and the fact that much of that outlook depends on things outside Mr. Osborne’s remit, especially developments in the euro zone.

Chancellor George Osborne’s Budget, announced Wednesday, will generate plenty of comment in the days and weeks to come. But does it really matter?

British politicians would say that it does, because for them it does. It frames the political debate and increases or reduces their chances of getting elected at the next General Election, due by mid-2015. And budgets inevitably create winners and losers, as some get the spoils while others have to pay.

But as for the broader economy, it’s unlikely to have much if any significance. Economist Chris Dillow has frequently outlined why on his Stumbling and Mumbling blog and in his Investors Chronicle column.

He gives two key reasons.

First, and most important, long-run economic growth tends to be extraordinarily stable in developed economies, notwithstanding the party in power or the policies it’s enacting. In the U.K., for instance, real GDP growth in the quarter century after the end of the Second World War averaged about 2.4% and has averaged around 2.1% since.

Not only that, but economic growth doesn’t vary much between developed countries. The trend rate of growth hasn’t just dropped in the U.K.

If you’re not based in the U.K., it’s probably hard to imagine quite what a major event the Budget speech is here — not for its economic significance but as an act of political theater.

The newspapers have been full of speculation and leaks about its content, the airwaves are jammed full of punters pontificating about it, the blogs and Twitter are buzzing, and opposition politicians are preparing their withering attacks.

The headlines are all about taxation, spending and equality. Yet, from an economic viewpoint, it’s rarely significant. And the U.K. financial markets – the pound, U.K. government bonds and London shares – are therefore most unlikely to move sharply on it.

The U.K. Budget “is unlikely to cause too great a stir, and both GBP and gilts are set to react in a fairly orderly manner to any changes to the OBR’s [Office for Budget Responsibility’s] updated macro forecasts,” commented Société Générale in a research note.

On the face of it the program is good news for small and medium sized companies, who will be able to access discounted bank loans to finance their growth plans.

The program’s success–namely the number of firms who apply for the loans–will go a long way towards answering a pertinent question about the state of the U.K. economy: Whether the scarcity of lending to small firms is a matter of supply or demand?

Politicians have been adamant that the problem lies on the supply side. They say banks have become so risk adverse in the wake of the financial crisis that they are not lending to small businesses at anything close to the required level.

For Mr. Osborne and the government this is a serious problem because if businesses can’t access the finance they require they are unable to expand, or to invest or hire staff–all of which are essential for the economic recovery.

Business Secretary Vince Cable has been particularly vocal, saying in a recent speech that Britain’s recovery is being “imperilled by the parlous state of the very institutions that caused the crisis in the first place”.